“America doesn’t make anything anymore” is a powerful talking point, but it’s false. We make plenty, including some of the most complex, high-valued goods in the world, from aircraft to pharmaceuticals to advanced electronics. Our workers don’t make many T-shirts or toasters; other countries can do it more cheaply. And the more successfully we produce and export advanced machinery, the more foreign goods we can afford to import. America’s industrial base is not collapsing. It’s evolving—becoming more productive, more specialized, and more capital-intensive. Protectionism won’t bring back the past or revive old jobs. It will just make the future more expensive and shift workers into lower-paying jobs.
– Veronique de Rugy, Reason magazine.
Lest any Trump admirers get all upset about my posting this quotation it is worth pointing out that there is plenty of protectionist guff on my side of the Atlantic as well. The EU has its Customs Union – the aspects of the bloc that I like the least – and it is described in typically bureaucratic fashion, here. This article in the Financial Times contains the claim that the EU is not as comprehensive in its “protective shields” as the US, Canada and Australia. That said, free trade in general terms is in global retreat, unfortunately, and not simply under the Trump administration – previous US governments were hardly much better, although that is not setting the bar very high.
I have jousted a bit in the comments on previous threads with those claiming that tariffs are necessary, for various (and to my mind, fallacious and often self-contradictory reasons): to “protect jobs”; national security and diversification of supply; as a club to hit supposedly foolish and oppressive other countries; to raise taxes and shift away from income taxes, or that comparative advantage on the David Ricardo model does not work if you allow cross-border capital flows. All the arguments are, in my view, flawed and in some cases, just plain wrong. (Here is a good summary of the arguments contra protectionism.)
As it is used a lot these days, here’s a good take-down, from the Hoover Institution, of the “national security” argument for tariffs. I can also recommend a new book, Free Trade In The 21s Century, a collection of essays by folk from the political, business and economics world. It is a big read, but good to immerse in if you want to delve into the arguments.
What I see playing out today in the US – and at times in Europe – is the way that, since the end of the Cold War and the supposed triumph of free market ideas in the subsequent 20-plus years, the argument was not made with sufficient force and the benefits not adequately spelled out. So here we are. And one big problem is that what Austrian economist Joseph Schumpeter called the “creative destruction” of capitalism meant that the supposed losers of all this commotion, such as car workers in the UK West Midlands or the US “rust belt” did not get, as far as they could tell, much immediate uplift from the greater overall prosperity that open trade brought. Telling them to “learn to code” just riled them up. (Explaining to an unemployed coal miner or machine tool operator that they should learn a very different skill is difficult, at any age, but particularly if the argument comes from a politician who appears to have never had a real job.) And this, it seems to me, is the fundamental issue: how can a culture of adaptability and can-do attitudes be fostered in a world of constant and at times, disturbing change? (Robert Tracinski makes a good attempt to do so, here.) Because if that does not happen, the populists of the left and the right, whether a Trump, a William Jennings Bryan, etc, will energetically seek to fill the market void. (HL Mencken magnificently destroyed Bryan, who was an opponent of gold-backed money and held many other terrible views that are, I fear, still popular in certain quarters.)
This book, Capitalism In America, from a few years ago by journalist Adrian Wooldridge and former Federal Reserve chairman, jazz musician and economist Alan Greenspan (full disclosure: I have met both of them), gives a good overview of the rise and fall and then rise of arguments about free trade, globalisation, the problems with how the losers from disruption can demand destructive changes, and more. If advocates of free trade like me cannot explain all of this, then the protectionist argument will gain ground, to calamitous effect.
“America doesn’t make anything anymore” is wrong, as he says in the OP.
But – “Americans don’t make anything anymore” is a true statement, and probably more to the point of what has been lost than the first statement would have been.
“Making things” used to be a huge and well-distributed benefit to society, doing nice things for general standards of living and all, but we lost that to creative destruction.
Great in the long term, not so great in the short term.
It is hypercritical for first world countries to apply admirable standards to their own manufacturers for human rights, animal welfare and environmental protection and then buy from cheaper foreign suppliers who don’t have those burdens.
I see canals as a metaphor for international trade. Where canals are at the same elevation they can simply be connected together. Where they are at different elevations, lock gates are required.
It’s not making things. Someone has to make them and obviously if it is your country then you have employment and income.
What is not happening though is innovation. Nothing is being invented now and hasn’t been for over 30 years. Everything is just slightly better, faster, smaller versions of what was developed over 30 years ago.
That is because in our nanny states, and I put all Western countries in here, the bureaucracy via H&S and legislation makes so many rules that the general public are unable to get the tools or material to experiment with and find something new. Also in the olden days I could make a new brand of lemonade, sell it and if successful I could expand. Now I have to pay £15K for the certificates in food hygiene and other, what I call taxes, on business, before I can even put my product to market. Then if it doesn’t work I’m down £15K. That is a lot of risk for an individual. So the only group that can afford to do all that are corporates and they want to leverage their existing IP so just fiddle with upgrades to what they are selling so they can keep their politically appointed board members funded. Funny that.
BTW. These Captchas are driving me loopy. The images are crap and it takes me several times. Sometimes I just give up commented because I can’t get through. If that is what you want then fine. I bet AI can do them better than I can.
Or from economists who work in academia or think tanks (ie jobs not really subject to market forces). Always comes across as ‘laissez-faire for thee, protected taxpayer and/or donor funded job for me’ vibe.
The US always made the best hand tools, is this still the case? I have a leatherman pocket knife which is much better designed and better made than the Victorinox one that it replaced. It was a lot more expensive, Snap on Tools are expensive too but they are the best.
These are all economic arguments, and I have always agreed that they are all bogus.
With the advent of Trump – or rather, with the advent of woke corporatism that Trumpism is a reaction against – I am toying with another idea, a political argument rather than an economic one.
Let us take it as a given that protectionism is economic self-harm. Let us also take it as a given that trade tariffs are a tax on the consumers in the importing country, not on the producers in the exporting country.
If all else were equal, these would indeed be bad things to be avoided.
However, all else is not equal. We have seen what has happened politically in the last 20-30 years. Politically speaking, libertarians sided with “big business”, the Davos crowd, because it supported free trade and free movement of workers, and against nationally-based collections of special interests like farmers, labour unions and so forth. And we enjoyed a huge economic boost in the form of an unprecedented influx of cheap stuff from China (and elsewhere). This was good.
Unfortunately, “big business” of the Davos crowd may have been libertarian’s political allies in this, but they are certainly very far from libertarians themselves. Instead, they have foisted on us the most appallingly authoritarian outcomes, from crony-capitalism (bank bailouts, privatising profits but socialising losses), woke capitalism (reviving racial discrimination, mutilation of children in the name of gender care) and a colonisation of our cities and larger towns by huge influx of peoples from parts of the world that bring with them tribal disputes and religious fervour long since settled in these isles, but now pursued with extreme violence and no little corruption.
None of these things are libertarian. And none of them would have been supported by our erstwhile economic foes, like the farming lobby, smaller business protectionists and (at least the more grassroots) labour unions.
Did we really make a good deal here? And even if it seemed right at the time, should we be re-evaluating our political allegiances in the light of developments?
Yes, a trade tariff is a tax, and I would like to see taxes minimised not new ones introduced. But I’m not sure I would have lost more from the hidden economic costs of higher tariffs than I did in fact lose from the hidden economic costs of pumping trillions of made-up money into the banks and welfare for immigrants. I’m quite certain that I am now at greater risk of losing my job because I said something my boss or colleagues consider “against the company’s [woke] values”.
We libertarians are unlikely to have everything our own way. So while I agree with Jonathan’s position in the abstract, and think it needs saying to ameliorate the damage done by the more regrettable choices of our Trumpist/Faragiste allies, I don’t think I can conclude that it is sufficient to cast the Trumpite wing into the darkness of “irredeemable enemies of libertarianism”, while continuing to tolerate (with howeversomuch regret) the depredations of the Davos branch of the Deep State.
Jonathan – I went to the Friedman article for the takedown of the national security argument and all I found was a rather wishy-washy short paragraph that can be paraphrased as “the argument might have some merit but its proponents haven’t proved it by comparing the cost of tariffs to the cost of (unspecified) alternatives.” That’s fine if your bedrock principle is “freedom is best unless you can prove otherwise”, but it’s hardly a proof.
Now having said that, I tend to agree that tariffs probably aren’t the most efficient way to pursue national security goals, and the simplest proof is that obvious national security industries, such as military equipment, are supported by some form of direct subsidy or legally closed market rather than tariffs. But that doesn’t really address the general industrial base part of it. US entry into WWII was critical to the allied victory in large part because of the enormous excess industrial capacity in everything from raw steel and aluminum to finished goods that were repurposed from prewar consumer demand to support war industry in the US and abroad (particularly the Soviet Union, whose aircraft production was heavily dependent on US aluminum). The modern American economy lacks the broad range of industrial production that made that possible, for better or worse.
Having said this, I’ll point out that tariffs are unlikely to actually do much to change things on the ground for a reason that isn’t commonly appreciated. That is, the US dollar is the global reserve currency. This means that as long as the global economy is expanding, the US HAS to run a trade deficit to supply the increased pool of US dollars the international system requires every year. And because those dollars are commonly held in the form of US treasuries it means that some portion of the US government operating deficit is an inevitable consequence of the dollar being a reserve currency. This wasn’t an issue when the pound was the global trading currency because it was a gold-backed currency and the banking reserves were gold reserves. I don’t know if the Empire was a net gold exporter (I would guess it was based on South African production), but it certainly wasn’t the only supplier to the global banking system. In effect, the US has found a way to do what Friedman mentions in the linked article of buying goods with paper money that other countries need to keep rather than use to purchase US goods. Imposing tariffs can’t fix this, because it doesn’t reduce the demand for US dollars.
FREE TRADE never existed, even before Trump. There was always some mixture of taxes, regulations, limitations, tariffs, customs, etc. (See for example the [“voluntary”] quotas on car imports imposed by Reagan). Pure free trade is an utopia. Trump is not a DESTROYER of FREE TRADE. He just adds some items to the enormous mess that exists. It is possible (even probable) that his interventions do more harm than good. But it is not a binary situation – absolute good vs. absolute bad.
Jacob:
FREE TRADE never existed, even before Trump. There was always some mixture of taxes, regulations, limitations, tariffs, customs, etc. (See for example the [“voluntary”] quotas on car imports imposed by Reagan). Pure free trade is an utopia. Trump is not a DESTROYER of FREE TRADE. He just adds some items to the enormous mess that exists. It is possible (even probable) that his interventions do more harm than good. But it is not a binary situation – absolute good vs. absolute bad.
Indeed. The key is not to make things even worse by accelerating protectionism. This is bad, AS I WILL POINT OUT BY SAYING SO WITH THE CAPS LOCK KEYBOARD FUNCTION.
Bobby: Americans don’t make anything anymore” is a true statement.
It is a false statement. If things are being made in the US, and with a vastly reduced number of people – because of much higher productivity because of automation, as the article in Reason to which I linked makes clear – then Americans are still involved. Just rather fewer of them are getting their hands dirty and standing in front of milling machines, etc.
Mary, I am not quite sure where your points are supposed to lead. I see Trump ratcheting up tariffs and doing damage to the US, and I see lots of people, including those who claim to be for free enterprise, defending or rationalism them. I see this as a bad thing in general. It also discredits those who argue for capitalism, because a lot of folk on the Left will say, “See, this is what you get from a capitalist”, and some will be foolish enough to take the bait. This is why I am as wary of the populists on the Right as the usual suspects on the Left.
Unfortunately, “big business” of the Davos crowd may have been libertarian’s political allies in this, but they are certainly very far from libertarians themselves
Indeed. But making the problems worse is not much of an answer.
phwest, interesting point about the dollar. There is, to coin a phrase, much ruin in a nation. At some point, the dollar’s dominance will fade, unless or until certain things change, notably the huge pile of public debt.
Jonathan,
If you’re only trying to engage in a theoretical discussion of what is good, then I think we’re very much on the same page.
But if we’re having a political discussion, where we seek to take forward our idea of what is good and carry it into action, then we have to engage with what parts of our agenda we are prepared to compromise on, and what parts are simply non-negotiable. I have seen too many libertarians treat the populists as simple beyond the pale because of their protectionism, even while that leaves us with the soi disant centrists.
There are arguments you have among comrades in arms, mildly stated, before going out into battle together. And there are arguments that define ally versus enemy. I am coming round to see the populists as my ally, despite my disagreements on free trade, because I am ready to declare the Davos types and their fellow travellers hostis humani liberis.
In short, I want to convince you to hold your nose and vote for Trump rather than to hold your nose and vote for Trudeau. (I’m not just talking about voting, obviously but I’m not saying one should never criticise political allies getting it wrong either; I’m just saying, one side is a misguided ally, the other an implacable foe).
The People’s Republic of China used to be a minor power in terms of manufacturing – it now has twice the manufacturing power of the United States.
The United States is now dependent, or becoming dependent, on external supplies in vital industries – and many American towns and cities have been “hollowed out”.
Yet Reason magazine declares there is no problem – which shows that the magazine may be reason by name, but it is not reason by nature.
It is true that the American situation is not yet hopeless (as the position of the United Kingdom may, sadly, be) – but clearly radical action needs to be taken – if American independence is to be maintained.
A nation can not really have an independent foreign policy, say decide to defend Japan or Taiwan (and defending Taiwan would be very difficult – due to its geographical position) if that nation is dependent on hostile powers for vital supplies – Adam Smith and the other free trade economists understood this.
And, in the end, a nation dependent on external hostile sources for vital supplies can not even have independent DOMESTIC policies.
The “international community”, the United Nations and so on, has made it very clear that it despises such things as Freedom of Speech and the Right to Keep and Bear Arms. That it wishes to end such things – in all nations.
Does the United States want to keep the Bill of Rights or not?
If America does want to keep the Bill of Rights – then it had better make sure that it is not dependent on the “international community” (government and corporate – as they are joined at the hip, as a glance at Davos and other conferences shows) for vital supplies.
It may be too late for the United Kingdom – a British government that wanted to restore such things as Freedom of Speech might find itself not in a position to do so – because of economic blackmail. “You must have hate speech laws – or you will find that you are not supplied with the goods you need”. “But trade is not supposed to be political!”- sadly it is political.
But it is not, yet, too late for the United States.
One can argue that President Trump is NOT taking the correct action – that, for example, that it would be more useful to end “Collective Bargaining” in the United States (the government granted power that has crippled some American industries), but clearly radical action is needed.
Pretending there is no problem, as Reason magazine does, will not do.
Agreed. Treating free trade as an abstraction, removed from any consideration of the realities of our specific world and circumstances is a barren intellectual exercise.
Even in abstract reasoning – completely free trade would result (theoretically) in an equalization of living conditions, i.e. the US and China or Vietnam or whatever would tend to to get to some common middle point in living standards. (Which would not make Americans very happy).
And it is true that many items are no longer made in the US — eg. almost all chips (semiconductors), or iPhones, etc. And those that are made, it is due to regulation – ex: fighter jets, armament in general, auto assembly, etc.
Although I don’t agree with significant parts of your views on tariffs, this is a good post. Reasonable and fair.
I’m a big fan of your comments generally Jonathan, so first of all I apologize that I don’t have time to read all the links you provided, however, I think I am familiar with most of the arguments nonetheless.
What I’d say though is that it is important to understand what Trump is and what he is not. Trump is not at all an academic or an economist. He is above all else a deal maker. If you want to understand Trump you have to understand that, with a few small exceptions, literally everything he does is about making deals.
It is a fact that in a two part relationship sometimes you have to do more damage in the short term to get a better long term outcome. To use a simple example, I might go into debt to build a new factory because the short term cost is offset with the long term benefit. Or to use an extreme case, which I think you’d agree with, in the Ukraine war a huge amount of destruction is ongoing because we believe that the short term cost (immense though it might be) will be offset with the long term benefits of keeping Putin in his borders (or, perhaps hanging from a lamp post.)
And this, I think, is really what tariffs here are about especially with regards to the April 2nd plan (which is to say — equalizing tariffs and tariff like costs on both sides.) It is a deal with the goal of lowering tariffs on both sides, a short term cost for a long term gain.
Again, I didn’t read all the links you included, so if they deal with this topic I apologize for my ignorance. But you seemed to reference the military security issue of “onshoring”, so I would like to understand thoughts on this. However, if I can use an extreme example, it is clear that we could produce F-35 fighters much cheaper if we produced them in China. However, hopefully it is obvious why that is not a good idea. The same reasoning can be applied at least in part, to making sure we produce antibiotics outside China too.
FWIW, I’m growing more and more to be a fan of the Trump team, but the tariffs issue is one that makes me queasy. But they are so effective I am willing to be open minded to understand the thinking and goals even if my natural inclination is to oppose them.
FWIW, one other thing that concerns me with Trump is his focus on Greenland. But I know a lot of military officers especially in the Air Force, and all of them to a man say that we NEED Greenland. So it is one area I cleared don’t have a clue what I am talking about.
The “learn to code” thing is particularly mindless, as it is a creative activity, and creative abilities are innately innate, not something pourable into an empty vessel. It’s like telling a photographer “learn to paint watercolours”. Or telling me, a coder, “learn to write fiction”. It’s not something *LEARNABLE*.
…But they are so effective…
I should clarify “they” here refers to the Trump team, not their tariffs.
JGH: Coding isn’t a learnable skill?
Maybe I’m missing something, but that strikes me as saying that one cannot learn Spanish, as it is an innate creative ability.
I suppose that I cannot simply learn to speak Spanish creatively enough to write as beautifully as a Lorca or a Neruda – that would involve creative writing ability far beyond the ability to speak the language – but wouldn’t that reasoning work with coding also?
IOW, I can certainly learn to code, but I might never code as beautifully and efficiently as a true master who has extraordinary abilities. But the bulk of the coding world isn’t built on artistry, I think.
bobby,
Of course coding isn’t innate. That is a ludicrous idea. It isn’t even especially “creative” (although the ideas you are trying to implement might well be). What it requires more than anything else (for anything but a little job) is organisation.
Your analogy with Spanish (or any other human language) is also apt.
Having said all that… There is one thing that puzzles me about coding. I have a pal about my age and he just doesn’t grok high-level languages like, say, Python, but he’s ace at assembler and C. I’m the complete reverse. Odd, that. Maybe we’re just wired differently. I have noticed similar things in a lot of allegedly related skills with individuals. I have certainly known ace mathematicians who just couldn’t do theoretical physics. So, maybe there is something “innate” going on at some level there.
If you can’t write well in your native language, you can’t write well in a foreign language either. Writing well is a talent, learning another language is a skill.
Off topic, but I would be interested to know if any metal basher had ever “learned to code” well enough to earn a living at it. I’m guessing not. Employers of programmers seem prefer young, biddable people, not hairy arsed foundry workers.
I think where I disagree with Johnathan most strongly is not really tariffs but actually this whole idea that what we have is in any large part capitalism in USA or UK. We have overwhelmingly Corporatism. Corporatism is really what defines the economic systems of most of the modern West, including USA and UK.
There are also small bits of Socialism and Capitalism as parts of the current economic system, but the overwhelming majority of it is Corporatism.
A lot of the time when free market capitalists and classical liberals defend capitalism, I agree with most (though not all) of their ideas. But the current system just isn’t capitalist in any significant way.
I do not believe that most classical liberals, libertarians, and free market capitalists generally do a good enough job calling out and criticizing the Corporatist economic system and distancing their ideas from the large portion of the current economic system that are Corporatist.
Sorry. My point was too subtle for you, I guess.
Manufacturing used to provide a good middle-class income to a huge swath of Americans.
Now, yes, as you say, Americans are still involved, but the entire manufacturing middle-class is gone, and what profits remain are captured by a very small layer at the top.
It’s overly simplistic to say that a society of 100,000 people in which 100 people are paid $10,000,000 each per year (for a resultant group income of $1B) is exactly as healthy as a similar society in which 10,000 people are paid $100,000 per year (for an identical resultant group income.)
But that does appear to be your calculus.
The present situation must not be confused with Free Trade as the great economists understood that term.
The great economists assumed a situation where consumption imports were paid for by exports – not by borrowing money or creating money from nothing. To pretend that Adam Smith and the others would have endorsed this current situation – is quite wrong.
And as bobby b points out – a society where Corporate managers (who sold out to the People’s Republic of China, and other powers, long ago) are “doing very well thank you” – whilst most other people see their real living standards get worse and worse (denied by Reason magazine – which pretends that “GDP” measures the real living standards of people, which it does not), is not stable – and will not last.
In the end, even these Corporate types will be betrayed – the People’s Republic of China (and so on) has no real love for them.
President Trump at least understands there is a terrible crises (which is better than Reason magazine and the rest – which have their heads stuck in the sand) – but does he have the right solution?
I fear he does NOT have the right solution.
He sees the problem – he does not deny the de-industrialisation of American cities and towns (which Reason and co, absurdly, deny), but he does not, in my opinion, have the correct solution to this crises.
But then a real solution – ending government granted “collective bargaining” in industry, and restoring real money and honest (Real Savings) finance – rather than fiat money and Credit Bubble finance (the mess that “Wall Street” has become – which does indeed make it the enemy of Main Street, via the “Cantillon Effect”), may be politically impossible.
It may be politically impossible to reverse the decline of American society – indeed the decline of Western Culture in general.
Is President Trump a modern version of the Emperor Majorian – whose efforts to save the Roman polity, most (although not all) historians argue, were doomed to failure?
If so I hope the personal fate of Presdient Trump will be less cruel than the end of Majorian.
https://x.com/Awesome_Jew_/status/1907096087594213676
https://x.com/GavinWax/status/1907242022106235106
@Paul Marks: One reply I’d make is that is it not a bit odd for Mr Trump to rant about how unfair the EU is in trade when the EU has been practising self-harm by adopting Net Zero energy policies and as a result, pays more for energy than the US does, thereby giving the US manufacturing sector a large competitive edge? If this edge is real – and it is – one wonders what the issue is.
I suspect that Trump does not know or care that what has really happened in the US over the past 30 years or so has been automation and massive improvements in labour productivity, and a move of production to less regulated and unionised parts of the US. The old “blue collar” parts of the US, which tended to vote Democratic, lost out, and the Republican “sunbelt” etc, gained. Trump, as I never tire of pointing out, is not really much of a conservative and is certainly very mixed in his economic philosophy: he claims to like deregulation, but tariff walls are a major impediment to healthy competition. He says he wants to cut taxes, but tariffs are taxes. We need to see if he can offset the impact of tariffs on American consumers with tax cuts elsewhere.
Stocks are down again today.
bobby:
Sorry. My point was too subtle for you, I guess.
No, it was not subtle; it was wrong, Bobby. You’re just being a prick.
Manufacturing used to provide a good middle-class income to a huge swath of Americans.
Now most of such folk work in services, which, contrary to the standard litany, are not inferior jobs.
Now, yes, as you say, Americans are still involved, but the entire manufacturing middle-class is gone, and what profits remain are captured by a very small layer at the top.
The second half of that sentence is debatable.
Veronique de Rugy: “For one thing, for all the talk of job losses and economic decline, it’s worth remembering that the unemployment rate is a very low 4.1 percent, and real wages (those adjusted for inflation) have been growing. If anything, manufacturing is suffering a labor shortage, with more than 600,000 open jobs in the sector.”
and:
High-tech manufacturing has boomed in other parts of America, creating jobs in aerospace, semiconductors, pharmaceuticals, and advanced machinery and services. These jobs command much higher wages than manufacturing jobs used to. Output of computer and electronics products has grown 1,200 percent since 1994. Motor vehicle output is up well over 60 percent. America and its workers excel in these industries, where we have significant comparative advantages. The biggest job and output losses were in sectors like apparel, textiles, and furniture. Apparel and leather goods output, for example, have fallen more than 60 percent since 2007. Should we do something about this?
Answer: not if it involves tariffs and other restrictions.
Also, if the cost of everything goes up in a protectionist world, are we left with a larger “middle class” or smaller one?
Tens of millions of Americans own savings plans and benefit from a robust stock market, not just a small slice of the total.